Biotech Notebook: Hythiam, Shire, Genentech

Talk is proving cheap at Hythiam.
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Is there a CEO in health care who talks more but says less than

Hythiam

(HYTM)

head honcho Terren Peizer?

I think not, especially after listening to two recent Hythiam conference calls -- one to discuss results from a clinical trial involving its controversial Prometa drug-treatment program, the other focused on third-quarter financial results.

Both calls were marathon affairs in which Peizer, if paid by the spoken word, would have earned himself a place on the

Forbes

400 list. Sadly, most of what Peizer says is dubious-sounding hype, although happily, investors seem to see through it all. The result: Hythiam's stock price is in free fall.

Hythiam shares have dropped 50% to $3.65 since announcing "positive" results from the Prometa study on Nov. 1, followed by "record" third-quarter results one week later.

It didn't take much more than a cursory read of the

press release

announcing the trial results to see that Hythiam was playing a fast and loose with its analysis, counting only those patients who completed treatment, excluding those who dropped out.

Maybe Hythiam didn't think investors and analysts would notice this data fudge, but when they did, Peizer and his team became mighty defensive. The low point of the conference call came when the study's lead investigator -- someone who's supposed to be an independent and objective arbiter of Prometa -- began recounting personal stories of meth addicts in the trial buying Hythiam stock because they were convinced that the treatment had turned their lives around.

I've been around the biotech block a long time, but I've never heard anything as offensive as a study investigator touting the stock of a drug company on an investor conference call. But heck, maybe he's on to something. Perhaps we could see the day when drug dealers peddle Hythiam stock on street corners instead of meth and crack?

Hythiam's third-quarter call wasn't much better. Prometa sales in the quarter totaled just $1.66 million. (The company doesn't actually disclose that figure, forcing investors to do the math for themselves.)

Hythiam, of course, is losing money -- $13.8 million in the third quarter and $38.8 million in the first nine months of the year. Because Hythiam can't convince insurance companies to pay for Prometa, the company must spend money to open its own treatment centers, essentially "buying" revenue at a loss. That help explains why, with the stock hit hard after the release of the clinical trial results, Hythiam still issued more stock to raise another $46 million.

Back in March, I wrote about U.K.-based

Shire Pharmaceuticals

(SHPGY)

and its

efforts to get doctors and kids suffering from attention deficit and hyperactivity disorder to switch from its old Adderall XR product (going generic in 2009) to the company's brand-new drug Vyvanse.

In a perfect world, I wrote, there wouldn't be much demand for a switch, since Adderall XR is as good, or better, than Vyvanse, in many ways. But since Shire controls both drugs and is a marketing juggernaut in the ADHD world, the company would find any number of ways to get docs and patients to make the switch.

Well, a couple of weeks ago, I received this email from a pharmacist at a managed care company:

"You are dead on. I am a pharmacist at a managed care organization. I have been talking with physicians who think that Adderall XR is being removed from the market, and are needlessly converting patients to Vyvanse and other ADHD meds. The reason: The Shire rep left them with the impression that as of 12-31-2007, Shire would no longer make Adderall XR. So, pediatricians and family practice M.D.s think they need to convert their patients to the successor product. Shire's position is that they are telling physicians that they are no longer "promoting" Adderall XR -- leaving it up to the M.D.'s interpretation. I spoke with the Adderall XR brand manager at Shire to clarify their position. He gave the company line that they were not sacrificing Adderall XR to promote Vyvanse, nor were they telling M.D.'s that the production and distribution of Adderall XR would cease after 12-31-07. You have to love big pharma."

The official line from Shire, as recounted on the drugmaker's third-quarter conference call, is that Vyvanse is a totally distinct product from Adderall XR. While a certain percentage of new Vyvanse prescriptions are being written for patients switching from Adderall XR, just as many patients, if not more, are switching off competing ADHD drugs, Shire said.

There is no concerted effort by the company to switch Adderall XR patients to Vyvanse, Shire insisted. As a result, Shire will be relatively unaffected when generic Adderall XR is launched in 2009.

That's Shire's story. The pharmacist on the front lines sees a different picture.

Investing in

Genentech

(DNA)

hasn't been easy these days. The company's stock is on track for another down year (its currently off 13%). This is on top of a 9% drop in 2006.

Genentech has practically written the biotech book on how to produce headline-grabbing, stock-moving clinical trial results. Not so this year. The latest disappointment came Tuesday, when partner

Roche

announced the failure of a phase III study testing the combination of Avastin and Tarceva in pancreatic cancer.

Looking ahead to 2008, could Genentech slide for a third straight year? It doesn't seem possible, especially from a company this smart. But to get the stock moving in the right direction (I mean up), Genentech needs some good news.

That could start in December, when an FDA advisory panel meets to discuss the use of Avastin in first-line metastatic breast cancer. The FDA's decision date is Feb. 23, 2008.

There are two big Rituxan clinical trials to watch for in the first half of next year: The "Olympus" trial is investigating Rituxan as a treatment for primary progressive multiple sclerosis, and the "Explorer" study tests the drug in patients with lupus. The latter trial, especially, could be big, because lupus has been a very stubborn disease to treat.

On the Avastin front, the adjuvant study in colon cancer continues. The latest analysis of the data took place a couple of weeks ago, with nothing to report. That means the study will continue into 2008, with the next look likely in the second quarter. Adjuvant use of Avastin in colon cancer (and other cancers) has the potential to add billions of dollars in sales to the company's top line.

Neurochem's

(NRMX)

attempt to develop Alzhemed as a new drug for Alzheimer's disease has been an expensive and dismal failure. But instead of just giving up, Neurochem CEO Francesco Bellini has decided to commercialize Alzhemed as a "nutraceutical."

After you stop laughing, consider the possibilities. That's what a friend of mine did, imagining who Bellini might pay to pitch his new product to late-night TV viewers everywhere:

"Hi this is Sally Struthers, do you have trouble remembering if you sent in your check for Save the Children? Do you have trouble remembering why I am a celebrity? If so, try this starter pack of Alzhemed..."

Tuesday's news of a merger between

Vaxgen

(VXGN)

and privately held

Raven Biotechnologies

effectively ends the Vaxgen era as we've known it.

That's because it will be Raven management driving the bus once the merger closes, and its Raven's pipeline of cancer drugs that will be company's primary focus. Vaxgen contributes a publicly traded shell, and some of its executives and board members are sticking around, but not much else.

Saying goodbye to Vaxgen makes me a bit sad, especially after all the fun investors had with its failed

HIV vaccine , billionaire

Paul Allen's investment stake,

cushy executive compensation policies, its myriad

accounting

problems, a foray into

South Korea

drug manufacturing and last, but not least, the much-hyped, but inevitably unsuccessful, attempt to become a producer of

bio-terrorism

cure-alls.

Goodbye, Vaxgen. I'll miss you.

Adam Feuerstein writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback;

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